Research update Risk Intelligence, Q3 2022: New initiatives improve prospects

Read the full report here:

Research update Risk Intelligence, Q3 2022

Equity Research Risk Intelligence

In the past quarter, revenue increased by nine per cent to DKK 4.6 million. At the same time, the EBITDA result fell to minus DKK 0.9 million. However, long-term value drivers continue to develop strongly. Among others, this is demonstrated by the NRR at 122 per cent. After adjustments, we calculate a fair value per share of DKK 6.7.

Reiterated sales target after a quarter below expectations

During the quarter, net sales increased by nine per cent to DKK 4.6 million. That was slightly below our forecast of DKK 4.9 million. Low activity for consulting and advisory services continued to hamper revenue growth. At the same time, the CEO’s statement indicates that activity in this business area has started to pick up in the current quarter. Most importantly, the main business is making progress. At the end of the third quarter of 2022, recurring system revenue (System ARR) amounted to DKK 16.3 million. System ARR increased year-on-year by an impressive 21 per cent and sequentially by 5.1 per cent. Also positive is that ARPU (average revenue per customer) is growing rapidly, by 13 per cent year-on-year and two per cent sequentially. These critical KPIs grew faster than we had anticipated.

The cost base, excluding depreciation and amortisation, increased by 24 per cent, faster than revenues. Thus, the negative EBITDA result fell to minus SEK 0.9 million. Our forecast was for minus DKK 0.4 million.

Lowered expectations on Land-Risk Logistics

With more than half of the fourth quarter behind us, the company’s guidance of revenues between DKK 21.5-23.5 million for the full year 2022 remains. We expect growth to accelerate in the following years due to new customers on LandRisk Logistics. Additional growth drivers with “Strategy 2025” are further price increases, upselling new add-on services, partnerships, and sales of proprietary data. In line with the company’s target, we expect revenues of DKK 50 million in 2025.

In our scenario, the company breaks even at the EBITDA level in 2023. A positive net result is not expected until 2024, one year later than the company’s target. To adjust our assumption, we would like to see a few quarters that show that the business is developing in line with the target. All initiatives under “Strategy 2025” support a good margin over time. Therefore, we expect the EBITDA margin to rise towards 30 per cent by 2026.

Low valuation to recurring revenues

A fair value of DKK 6.7 per share (previously DKK 7.7) is calculated in a base-case scenario. The downward revision is mainly explained by lower valuation multiples in the market, adjusted financing assumptions and higher leverage. Our valuation corresponds to an EV/Sales NTM of 5.2x. The peer group is trading at a median EV/Sales NTM of 9.6x. In parallel, the stock is trading at an unjustifiably low 1.9x to our estimated NTM, and 3.0x last reported System ARR.

Disclaimer

Carlsquare AB, www.carlsquare.se, hereinafter referred to as Carlsquare, conducts business with regard to Corporate Finance and Equity Research in which areas it, among other things, publishes information about companies including analyses. The information has been compiled from sources that Carlsquare considers to be reliable. However, Carlsquare cannot guarantee the accuracy of the information. Nothing written in the analysis should be regarded as a recommendation or invitation to invest in any financial instrument, option or the like. Opinions and conclusions expressed in the analysis are intended only for the recipient.

The content may not be copied, reproduced or distributed to another person without the written approval of Carlsquare. Carlsquare shall not be held responsible for any direct or indirect damage caused by decisions made on the basis of information contained in this analysis. Investments in financial instruments provide opportunities for value increases and profits. All such investments are also subject to risks. Risks vary between different types of financial instruments and combinations of these. Historical returns should not be considered as an indication of future returns.

The analysis is not directed to U.S. persons (as defined in Regulation S of the United States Securities Act and interpreted in the United States Investment Company Act 1940) nor may it be disseminated to such persons. The analysis is also not directed to such natural and legal persons where the distribution of the analysis to such persons would result in or entail a risk of a violation of Swedish or foreign law or constitution.

The analysis is a so-called Commissioned Research Report where the analysed Company has signed an agreement with Carlsquare for analysis coverage. The analyses are published on an ongoing basis during the contract period and for a usual fixed remuneration.

Carlsquare may or may not have a financial interest in the subject of this analysis. Carlsquare values the assurance of objectivity and independence and has established procedures for managing conflicts of interest for this purpose.

The analyst Markus Augustsson, Fredrik Nilsson, and Lars Johansen Öh does not own and is not allowed to own shares in the Company analysed.